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Chapter 20: Q9. (page 430)

In 2018, manufacturing workers in the United States earned average compensation of \(21.86 per hour. That same year, manufacturing workers in Mexico earned average compensation of \)3.20 per hour. How can U.S. manufacturers possibly compete? Why isn鈥檛 all manufacturing done in Mexico and other low-wage countries?

Short Answer

Expert verified

The U.S. manufacturers compete only if the worker's productivity is high.

The manufacturing is not done in Mexico and other low-wage countries because of trade barriers.

Step by step solution

01

Step 1. Differences in productivity as a reason for competing against low wage workers

The manufacturing workers in the United States are earning more wages than the workers in Mexico is because of the difference in productivity. If the U.S. manufacturers have high productivity than the other nation's workers, then the U.S. workers can earn a high wage. The high wage is equalized with high productivity.

02

Step 2. Reason why all manufacturing is not done in low wage countries like Mexico

The trade barrier restricts the free flow of goods and services; thus, it also limits the production of goods in other nations. Therefore, all manufacturing is done not in Mexico and other low-wage countries because of trade restrictions.

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Most popular questions from this chapter

The following hypothetical production possibilities tables are for China and the United States. Assume that before specialization and trade the optimal product mix for China is alternative B and for the United States is alternative U.


China Production Alternatives

Product

A

B

C

D

E

F

Apparel (in thousands)

30

24

18

12

6

0

Chemicals (in tons)

0

6

12

18

24

30


U.S. Production Alternatives

Product

R

S

T

U

V

W

Apparel (in thousands)

10

8

6

4

2

0

Chemicals (in tons)

0

4

8

12

16

20

  1. Are comparative-cost conditions such that the two areas should specialize? If so, what product should each produce?

  2. What is the total gain in apparel and chemical output that would result from such specialization?

  3. What are the limits of the terms of trade? Suppose that the actual terms of trade are 1 unit of apparel for 1陆 units of chemicals and that 4 units of apparel are exchanged for 6 units of chemicals. What are the gains from specialization and trade for each nation?

What central point was Bastiat trying to make in his fictional petition of the candlemakers?

Quantitatively, how important is international trade to the United States relative to the importance of trade to other nations? What country is the United States鈥� most important trading partner, quantitatively? With what country does the United States have the largest trade deficit?

Suppose that if Iceland and Japan were both closed economies, the domestic price of fish would be \(100 per ton in Iceland and \)90 per ton in Japan. If the two countries decided to open up to international trade with each other, which of the following could be the equilibrium international price of fish once they begin trading?

a. \(75

b. \)85

c. \(95

d. \)105

Assume that the comparative-cost ratios of two products鈥攂aby formula and tuna fish鈥攁re as follows in the nations of Canswicki and Tunata:

Canswicki: 1 can baby formula 鈮� 2 cans tuna fish

Tunata: 1 can baby formula 鈮� 4 cans tuna fish

In what product should each nation specialize? Which of the following terms of trade would be acceptable to both nations: (a) 1 can baby formula 鈮� 2 1/2 cans tuna fish; (b) 1 can baby formula 鈮� 1 can tuna fish; (c) 1 can baby formula 鈮� 5 cans tuna fish?
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